Moscow ready to make its move on global markets

By: Caroline Allen | 09 Jan 2012

Russia has used the traditional end-of-year break to signal its new approach to international investors.

European investors may be dreading the start of the new year, considering the challenges that continental markets face. But Russia has used the seasonal lull to ease access for foreign interests to its stock exchange.

The country came out of its winter break on 10 January but, for the first time, Moscow’s stock exchange remained open for trading over the period. The cautious move, enacted when trading volumes, news flow and investors activity are all subdued, is part of Moscow’s step-by-step attempt to raise its global profile, following the merger of its MICEX and RTS bourses last month. Legislation to create a domestic central securities ­depositary took effect on 1 January and foreign investors will be allowed to open accounts this July.

That will open the local market to larger global money funds that have either shunned or have been ­prohibited from investing without that access.

Polls Apart

But these positives, seen by some as “potential game-changers”, have been overshadowed by the fallout from December’s parliamentary elections, the results of which have polarised commentators and investors. The Russian equity market, as well as the rouble, fell sharply after the elections, as protesters alleged vote-rigging and called for a new poll.

Marcus Svedberg (pictured), chief economist at East Capital, noted: “United Russia should be able to continue to rule, but the election results show the electorate is growing increasingly impatient and frustrated with the ruling elite.” Prime Minister Vladimir Putin, who is set to run in presidential elections in March, has promised “significant renewal” of party officials in key government posts, but also a response to demands for modernisation.

Investors are super-sensitive to the impression of political unrest in Russia, which is increasingly ­influential as one of the BRIC economies, with important ties to both Europe and Asia.

Moscow has said it is ready to help resolve the eurozone crisis by supporting the IMF and some 40% of Russia’s foreign reserves are held in euros. Domestic investors’ capital outflows to other financial centres suggest fragile confidence in the local market and banking sector.

Russia’s acting finance minister Anton Siluanov admitted that capital flight could have exceeded $80bn in 2011 and even hit $85bn ahead of this year’s ­presidential election.